Regional Growth Theories: Strategic Achievements and Future Challenges

1. Regional Growth Theories:Strategic Achievements and Future Challenges Roberta Capello Politecnico of Milan Immediate Past-President of RSAI DIME Conference, held in Pécs, Hungary 31 March – 1 April 2011

2. Why a presentation on theevolution of regional growth models? Territorial issues on the agenda of policy makers. How does our theoretical toolbox look like? Strategic achievements up to now. Present theoretical debate. Challenges in front of us.

3. Strategic Achievements

4. Stylized facts in the evolution of growth models Evolution of regional growth models has followed mega-trends common to growth models: from exogenous to endogenous regional growth models; from constant to increasing returns to scale; from single to multiple equilibria.

5. Peculiarities in the evolution of regional growth models Regional growth models have been characterised by specific conceptual achievements: an evolution in the concept of growth; an evolution in the concept of space. Evolutions made possible through the cross-fertilization between regional growth and regional development theories.

6. A) Evolution in the concept of growth No single definition has been given on the concept of growth in the different models. Three main definitions can be envisaged in the theories of regional growth: growth as a short term increase in employment and income levels; growth as an increase in individual well-being; growth as an increase in real productive capacity of a region.

7. Growth as a short term increase in employment and income levels Identification of the factors that generate employment and income growth in the short run. Normative problem taken into consideration: unemployment. Theories: keynesian theories of the fifties.

8. Growth as an increase in individual well-being Identification of the economic mechanisms which enable a region to move out of poverty, start along a growth path, and ensure a certain level of well-being and per capita income for its inhabitants. Normative problem: regional disparities Theories: neoclassical theories of the sixties.

9. Growth as an increase in real productive capacity of a region Identification of the local conditions that enable the economic system to achieve high levels of competitiveness and innovativeness. Normative problem: the achievement of a role of region in the in the international division of labour. Regional competitiveness. Theories: endogenous development theories; endogenous growth theories; new economic geography theory.

10. Usefulness of this distinction 1) To avoid the attribution totheories and models of aims that they do not in fact set for themselves; 2) To clarify some apparent contradictions in theories and models of regional development. Example: For the short-period income growth approach, an increase in exports is a development mechanism because it creates income. For the individual well-being approach, an increase in exports removes goods from final consumption and consequently hampers growth.

11. Two counter-arguments in general beliefs 1) Neoclassicals do not take into considerations only convergence: divergence enters the recent (and less recent) neoclassical regional growth models; 2) Important theories conventionally included in Regional Economics textbooks revealed that the original purpose for which they were developed does not permit them to state everything that is generally attributed to them.

12. B) The evolution in the concept of space A profound development in the way space is conceived in regional growth models has taken place in the last sixty years. uniform-abstract space (‘50 - onward); diversified-relational space (‘70 - onward). - diversified-stylised space (‘90 - onward).

13. Uniform-abstract space Geographic space is divided into ‘regions’, areas of limited physical-geographical size (largely matching administrative units). The role of a ‘physical container’ of development, a simple geographical area often associated with the administrative region by aggregate macroeconomic theories. -> passive role of space in growth; -> time is a chronological time. Theories: Keynesian theories of regional growth (North, 1955). Neoclassical theories of regional growth (Borts and Stein, 1960).

14. Diversified-relational space Space plays an active role in regional development as a source of economic advantages, in the form of agglomeration economies. Diversified space -> uneven spatial distribution of activities within a region; Relational space -> local social relationships play a role. -> active role of space in growth; -> time is measured as the rhythm of innovation. Theories: Local district theories, local milieux, learning region theories on seminal works of Marshall (1909) and Perroux (1955).

15. The impasse of the eighties In the words of Von Böventer (1975), ‘pure and exact’ regional growth theory without agglomeration economies, on the one hand, and; ‘applied regional theory’ which is inexact but takes agglomeration factors into account, on the other hand”.

16. Diversified-stylized space The most recent interpretation of space is that of a diversified-stylized space. Diversified -> polarities exist on which development insists (increasing returns) Stylized -> polarities have no territorial dimension (space is stylized into points). -> passive role of space in growth; -> time is a chronological time. Theories: NEG and new growth theories. (Among others: Aghion and Howitt, 1992; Fujita and Thisse, 1996 and 2002; Grossman and Helpman, 1991; Krugman, 1991; Krugman and Venables, 1996; Lucas 1988; Romer, 1986; Miyao, 1984 and 1987).

17. Present theoretical debates

18. Challenges Two major debates are nowadays of great importance, both having a strong normative interest, and representing theoretical challenges to be faced by regional economists: the convergence debate; the regional competitiveness debate.

19. The Regional Competitiveness Debate What do we mean by regional competitiveness? Price-competitiveness definition: increase in the export-base of the region, focusing on export performance: increase in the ratio between the general level of import prices and the level of export prices; increase in factor productivity: increase in the ratio between export prices on import prices (terms of trade).

20. The Regional Competitiveness Debate Definitions seem contradictory. We come out of the contradiction with a non-price competitiveness definition. knowledge and innovation.

21. The regional competitiveness debate: knowledge and innovation Knowledge and innovation are perceived as the main elements supporting competitiveness even at regional level. The Lisbon agenda has failed but a “new” Lisbon agenda has been launched. Smart growth in the Europe2020 Agenda. What can our theoretical debate add to this policy issue?

22. In 2007 regions having reached 3% of R&D expenditures on GDP are in a number of 33 (11% of the European NUTS2 regions) and concentrated in a few countries in the North of Europe. Moreover, a very high number of regions belongs to the lowest class, the one that registers a R&D on GDP lower than 0.5%. Do we really take advantage from an innovation policy with a common aim for all countries/regions? The regional competitiveness debate: the smart growth target in R&D expenditures

23. The regional competitiveness debate: technologically advanced regions in Europe

24. The regional competitiveness debate: scientific regions in Europe

25. The regional competitiveness debate: knowledge networking regions in Europe

26. The regional competitiveness debate: Knowledge economy in Europe

27. The regional competitiveness debate: knowledge and innovation

28. The regional competitiveness debate: policy implications (1) Move away from the simple equations that R&D = knowledge Knowledge = innovation Regional growth models based on innovation should only be thought of as depending only on R&D expenditures.

29. The regional competitiveness debate: policy implications (2) The pathways towards innovation and modernization are differentiated among regions according to local specificities. The identification of ad-hoc innovation policy actions that go beyond the thematically and regionally neutral and generic orientation of R&D funding investments is necessary.

30. Future Challenges

31. Future challenges Cross-fertilisation in interdisciplinary theoretical fields. Convergence of the different theoretical approaches.

32. Cross-fertilisation in interdisciplinary theoretical fields Some examples of missed interdisciplinary opportunities: on the social capital concept developed by quantitative sociologists; on the concept of knowledge spillovers developed by geographers and industrial economists; on regional growth models developed by mainstream economists.

33. Growth theories Development theories Location theories Theories with diversified-relational space (endogenous local development) Theories with diversified-stylized space (new economic geography) ? Convergence in different theoretical approaches

34. Conclusions A convincing ‘model’ in which space is given a real territorial dimension is required. The model should include the micro-territorial, micro-behavioural and intangible elements of the development process into macroeconomic growth models. What is missing is a model which clearly stresses the micro-territorial foundations of macroeconomic growth models.

35. Thank you very muchfor your attention!